DSP Group Inc.

 

DSPG is a specialty semiconductor designer focused on wireless communications.  Their legacy business (cash cow but declining) is providing chips for cordless phones.  Their non-legacy business is growing and possibly the most interesting part is SmartVoice, previously known as HD Clear, a noise-cancellation solution that is low-power and very effective; it was employed in the Samsung Galaxy Note 7 until the phone was discontinued due to battery issues.  While DSPG has had a history of volatile results, their non-legacy business is growing solidly should eventually more than offset declines in their legacy business. 

 

Ests:     1Q19   2Q19   FY19    FY20

Revs    29.1m  29.5     124      136.8

EPS      .01       .03       .21       .36

 

P=12.72, net cash+inv=5.33sh, TTM EPS .23, ex cash P/E=31X, FY19 EPS est is below TTM EPS, could be too low.

 

1Q19   .05 vs .01, est .01

  • May 6, 2019, P=14.59, TTM EPS=.27, ex cash P/E=34X, FY 19 EPS est is below TTM EPS, could be too low

  • Revs +1% to 28.3m, GM 51.5% vs 49.1%, OpInc 0.4m vs (0.2m)

  • Growth Revs +26% to 17.7m (63% of total), Unified Comm +13% to 9.4m, SmartVoice +162% to 4.1m, SmartHome +2% to 4.2m, Cordless -25% to 10.6m

  • SmartVoice started shipping 3 new consumer programs (Oppo, Arlo, Chinese OEM education tablet), Unified comm started shipping to 2 new tier 1 OEMs, SmarHome got new design wins for ULE in U.S. and EU (Network Thermostat, Snips, Gigaset), Unified comm new design wins from a tier 1 OEM for high-end conference system, SmartVoice design win from a tier 1 OEM for its high-end TV’s smart remote control, 

  • 2Q Guidance: Revs 28-30m, est 29.5m, GM 49-51%, OpEx 16-17.5m, implies EPS .09-.12, +29-71%, est .03

  • Guidance for possible slight q/q rev growth (consistent with estimates), seeing some softness in unified communications due to inventory adjustments, expect 2H rebound (expect excess inventory to be consumed in 2Q), the transition continues, possible past the tipping point where operating income and EPS start to grow. 

4Q18   .04 vs .06, est (.03) down from .09, FY18 EPS .23 vs .17

Feb 4, 2019, P=12.72, TTM EPS=.23, ex cash P/E=31X, FY19 P/E=34X

Revs-17% to 26.1m, GM 47.9% vs 48.1%, OpInc (0.7m) vs 1.1m

Growth Revs +1% to 15.5m (59% of total), Office/VoIP -10% to 8.5m, SmartVoice +83% to 4.1m, SmartHome -21% to 2.9m, Cordless -33% to 10.6m, 

1Q Guidance: Revs 27-29m (vs 28.1m, est 28.3m), Growth Revs 16-18m (vs 14m), EPS ~0, est .01

Guidance for q/q improvement factors gradual easing in cordless supply chain correction, strengthening consumer demand, commencement of shipments of SmartVoice to a tier 1 Chinese smarthone OEM, securing a high-volume design win with a tier 1 OEM for Office/VoIP, selected as primary IoT technology for Orange’s connected home service in France

 

3Q18   .11 vs .10, est .08

  • November 1, 2018, P=12.23, TTM EPS=.25, ex cash P/E=28X, FY19 P/E=22X

  • Revs -5% to 32.6m, low end of guidance, GM 50.3% vs 47%, OM 7.5% vs 6.2%, OpInc +14% to 2.4m

  • Growth Revs +18% to 18.9m (58% of total), Office/VoIP +20% to 12.1m, SmartVoice +123% to 3m, SmartHome -17% to 3.8m, Cordless -25% to 13.7m

  • Recently secured 6 wins for SmartVoice with 6 leading brands in consumer electronics including a tier 1 Chinese smartphone maker. 

  • 4Q Guidance: Revs 25-27m (-20%-14%, est 34.2m), implies EPS (.04)-(.02),  mainly due to inventory correction in cordless as well as timing of orders for SmartHome and Office/VoIP products, expect growth in 2019

  • 2018 not as successful as they initially expected, while growth products should do well in 2019, cordless will continue to offset, supply chain corrections and tariffs could impact results.

2Q18 .07 vs .06, est .02

  • July 30, 2018 P=12.80, TTM EPS=.24, P/E=31X, FY19 P/E=20X

  • Revs -2% to 30.7m, GM 49.5% vs 46.6%, OpInc 1.4m vs 1.1m

  • Growth Revs +7% to 15.8m, Office/VoIP +14% to 9.8m, SmartVoice +147% to 2.2m, SmartHome -27% to 3.8m, Cordless -10% y/y

  • 3Q Guidance: Revs 32-34m (est 34m), implies EPS ~.07-.09, est .09

  • Continued growth/recovery in their growth markets, Amazon Alexa Voice Services certified their far-field 3-microphone development kit, could be a catalyst for design wins.

1Q18   .01 vs (.05), est (.02)

  • Revs +1% to 28.1m, GM 49.1% vs 44.2%, OpInc (0.2) vs (1.5)

  • Smartvoice 1.6m, Office/VoIP +27% to 8.4m, SmartHome -2% to 4.1m

  • Smartvoice wins: 2 Chinese smartphone OEMs for new smartphones for 2H launch, 1 Japanese mobile OEM for its tablets started shipping in 1Q, a leading European audio consumer brand for its new smart speaker.

  • 2ndEU telco selected ULE for SmartHome service to launch late 2018.

  • Office/VoIP, Smartvoice and SmartHome now 50% of revs, grew 26%

  • 2Q Outlook: Revs 29-32m, est 31m, implies EPS .02-.03, est .03

  • Expect 2Q Smartvoice revs 2-2.4m, tempered compared to previous expectation due to broader weakness in smartphone market and supply chain correction, see temporary weakness for SmartHome due to delays in customer product launches and expect recovery in 2H

4Q17   .06 vs .13, est .04 down from .10, FY17 EPS .17 vs .36

  • Revs -11% to 31.2m, new product revs +9% to 15.4m, GM 48.1% vs 45.3%,

  • Office/VoIP +48% to 9.5m, Home gateway +1% to 2.5m, IoT -54% to 1.1m, SmartVoice -20% to 2.2m

  • Continued design wins and customer engagements bolsters management’s confidence in “significant” long-term revenue growth and margin expansion, expect new product growth to outpace declines in legacy cordless business in FY18

  • SmartVoice was designed into Samsung A8 (revealed by teardown).

  • Guidance: 1Q Revs 27-29m (vs 27.9m, est 29.3), implies EPS (.03) to .00, vs (.05), est .00

3Q17   .10 vs .19, est .09

  • Revs -12% to 34.3m, GM 46.9% vs 45%

  • New products -3% y/y, +9% q/q to 16m, 47% of revs, 8 new product launches/announcements for SmartVoice including a high volume design win from a leading mobile OEM, Hero 6 by GoPro, 4 new smart speakers, a Samsung smart watch

  • Office/VoIP +32% to 10.1m, Home gateway +1% to 3.1m, IoT +24% to 1.5m, SmartVoice -71% to 1.4m

  • Guidance: 4Q Revs 30-32m, est 34.6, implies EPS .02-.07 (est .10)

  • While headwinds continue, FY18 should be a more successful year.

2Q 17.06 vs .11, est .02

  • Revs -13% to 31.3m, GM 46.6%

  • Office/VoIP +17% to 8.6m, Home gateway +9% to 8.6m, IoT +80% to 2.3m, SmartVoice (HDClear) -81% to 0.9m

  • New products 47% of total revs, mgmt. sees q/q rev growth due to SmartVoice shipments for non-smartphone applications and demand for Office/VoIP products

  • 3Q Guidance: 33-35m, est 34.4

1Q 17(.05) vs (.08), est (.07)

  • Revs +1% to 27.9m, GM 44.2% vs 42.6%, OpLoss 1.1m vs 1.7m

  • Office/VoIP grew 30%, IoT grew 30%, HDClear -90% due to Samsung Galaxy S7 cancellation, mgmt. confident the decline in HDClear is temporary, new products now 50% of revs

  • Seeing early signs of improvement in HDClear as they start shipping to 2 known smartphone suppliers, had other interesting design wins with HDClear including SD Microelectronics for a non-smartphone application, feel the pipeline has not been more promising

  • 2Q Guidance: Revs 30-32m (vs 36.2m, est 30.2m), GM 43-46%